China and India are the world’s top gold-buying countries. Gold demand from these countries is rather inelastic. Regardless of price swings, people continue eyeing gold.
The festive season in India and the Chinese New Year foretell a significant amount of long bets on gold. Combined, Asian countries contribute about 60% of total global gold purchases. The Chinese markets witnessed a record 1,176.4 tons of gold demand in 2013. This rise in demand followed a slump in prices during the year.
Total gold consumption in 2015 stood 3.7% higher than it had a year earlier. China consumed almost 986 tons of gold in 2015. Gold’s 10% slump in price was likely the main factor behind its rise in demand.
Gold jewelry demand, bar consumption, and coin sales surged 2.1%, 4.8%, and 78%, respectively, in 2015. December 2015 saw investors hurrying to gold as the investment became comparatively cheap.
While mine production has remained almost stable throughout the past few years, gold demand in China is determined by factors such as SGE (Shanghai Gold Exchange) withdrawals, Swiss exports to China, and Hong Kong exports to China, among others.
The recent upheaval in the financial markets has indeed given some luster to haven assets such as gold. The Chinese financial market slump and with rapid currency devaluation left investors with no place to park their money, resulting in gold buying.
The rise in gold also boosted investments in mining-based ETFs such as the VanEck Vectors Gold Miners ETF (GDX) and the leveraged Direxion Daily Gold Miners ETF (NUGT). These two indicators have risen 11.9% and a whopping 31%, respectively, since the start of 2016.